Stamp Duty Deadline Dents the UK Housing Market: What’s Next?

The UK housing market has entered a phase of subdued activity following the conclusion of the long-running stamp duty holiday. Although house prices edged up by 0.5% in May slightly surpassing expectations this modest growth masks a broader trend of price stagnation. In real terms, UK house prices have barely moved since 2016, with wage growth outpacing property price increases, intensifying affordability pressures for buyers.

The impact of the stamp duty deadline is particularly evident in transaction volumes. Mortgage approvals for new home purchases fell roughly 10% below pre-pandemic norms in April, signaling a cautious market response. Without an influx of forced sellers or significant reductions in interest rates, a sharp correction seems unlikely. Conversely, the Bank of England’s current stance, driven by inflation concerns, suggests that mortgage rates will remain elevated for the foreseeable future, limiting potential market rebounds.

Mortgage borrowing costs remain a significant challenge. Typical rates hover around 4% depending on deposit size, compounded by setup fees that can exceed £1,000. However, lenders are gradually relaxing lending criteria, lowering deposit thresholds and easing stress tests which could broaden access to mortgages and support buyer demand over the coming years.

Stamp duty, meanwhile, remains a formidable barrier. What was once a relatively minor tax has grown into a major fiscal lever, expected to generate nearly £14 billion in 2024/25 from England and Northern Ireland alone. This considerable cost deters many potential sellers and buyers, particularly those seeking to downsize or relocate. Despite its dampening effect on market fluidity, political and budgetary realities make meaningful stamp duty reform unlikely in the near term.

Looking ahead, the UK housing market is poised for a period of gradual, steady movement rather than dramatic shifts. Stable employment and a resilient economy will prevent collapse, but elevated borrowing costs and high transaction taxes will constrain rapid growth. For buyers and sellers, navigating this environment will require patience and strategic planning, with long-term ownership emerging as a prudent approach.

In summary, while the market faces headwinds from rising costs and a post-stamp duty slowdown, structural factors suggest a continued stalemate rather than a crisis. The interplay between affordability, supply, and fiscal policy will shape the trajectory, emphasizing the need for cautious optimism in the months ahead.